A city of London staff report released today estimates the COVID-19 outbreak will deliver an initial hit to city finances that could range from $23 million to up to $33 million and will result in a budget deficit for 2020.
The projected shortfalls are a combination of lost revenues and extra costs the city expects to face with the local economy brought to a standstill by physical distancing measures and the need to provide added supports for people affected by the coronavirus outbreak.
Some examples of lost revenue and higher expenditures the city is dealing with include:
- No fares being collected on London Transit Commission buses ($12 million).
- Reduced water usage ($2.8 million).
- Reduced income on money the city has invested due to lower interest rates ($3.1 million).
- Increased policing costs and lost revenue ($2.6 million).
- Loss of gaming revenue from Western Fair District’s closure ($2.6 million).
- Loss of parking revenue ($2.6 million).
- Drop in hotel tax revenue the city collects ($1.7 million).
- Loss of revenue at city-owned RBC Place convention centre ($1.2 million).
- Loss of garbage tipping and recycling fees ($1.5 million).
- Loss of revenue at Budweiser Gardens ($800,000).
- Loss of revenue at Covent Garden Market ($900,000).
It’s worth noting that the projected shortfall of up to $33 million only covers until the end of August. Assuming the economy will still be affected for months beyond, the city will face a much higher deficit for 2020.
The report points out this isn’t a complete list and does not include possible write-offs for unpaid property taxes and losses in planning and development application fees, which the report said were too difficult to estimate.
The report says the city will be able to pay its obligations in the coming months but also warns that “London’s liquidity strength will be tested in an unprecedented way.”
Measures already taken by the city to ease the strain on taxpayers — such as deferrals for the payment of property tax instalments — may require the city to borrow from its reserve funds “in order to maintain sufficient liquidity,” the report says.
Also the report says the city’s $3.2-million surplus from 2019 should be used to offset COVID-19 impacts in the 2020 budget. It also recommends that $13.2 million in assessment growth money left over from 2019 will be prioritized to cover COVID-19 costs in 2020.
Restraint will be required
The city budget chair Coun. Josh Morgan said the situation will mean belt-tightening for the 2020 fiscal year and include a review of all planned expenditures, including some already approved capital projects.
“We are going to have to limit discretionary spending wherever possible,” said Morgan. He added that the city will stop recruiting non-essential jobs to help address the budget pressure. “We’ll need a process for revisiting some of our decision-making beyond 2020 as well,” he said.
Morgan said senior governments will be expected to help municipalities struggling in a post-COVID-19 world. He points out that municipalities can’t approve budget deficits, and can’t borrow to cover any deficits that develop through the year. Unlike provincial and federal governments, municipalities have to rely on two main revenue sources: property taxes and user fees.
“We will need help from higher levels of government,” he said.
The report was prepared by city manager Lynne Livingstone and treasurer Anna Lisa Barbon and will be presented to politicians at Tuesday’s strategic priorities and policy committee.